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Feds Probe Microsoft Whistleblower's Bribery Accusations

Feds Probe Microsoft Whistleblower's Bribery Accusations

Did business partners of Microsoft give money to officials in three countries to make sure the company got lucrative software contracts? That's the allegation that two U.S. agencies are reportedly investigating, thanks to a Microsoft whistleblower. The investigation has ties to a 35-year-old law that has been dusted off by federal authorities in the past few years to fuel a growing round of enforcement actions against companies.

By John P. Mello Jr.
03/20/13 12:10 PM PT

Two federal agencies are reportedly probing the relationship between Microsoft and business partners in China, Italy and Romania that allegedly bribed foreign officials to land software contracts.

Lawyers at the U.S. Justice Department and Securities and Exchange Commission are investigating accusations made by a whistleblower who formerly worked for Microsoft in China, as well as connections between the software maker and some consultants and resellers in Italy and Romania, The Wall Street Journal reported Tuesday.

Microsoft did not respond to our request to comment for this story. However, the company told The Wall Street Journal that it would "cooperate fully" with any government inquiries made into its business practices.

The SEC had no comment on involvement in the reported investigation, SEC spokesperson Christina D'Amcio told TechNewsWorld.

The DOJ is also mum on the reported probe. "It's our policy to neither confirm nor deny the existence of investigations," spokesperson Michael Passman told TechNewsworld in an email.

High Risk Gamble

In Microsoft's case, if there was any kickback activity, it may have been done without the knowledge of the brass in Redmond, said Dan Harris, a partner with Harris & Moure, which sponsors the China Law blog.

"Microsoft doesn't need to do this," Harris told TechNewsWorld. "It's not worth it."

Dabbling with corruption is a high-risk area for a company of any size.

"The government loves this area because they make money from it and we have a deficit," he said. "It's their way of acting like they're doing something against big corporations and hiding the fact that they didn't do anything against the banks after the financial crisis."

Federal Money Maker

Dozens of investigations are currently being conducted into corporate misdeeds under the Foreign Corrupt Practices Act (FCPA), the Journal reported. Passed in 1977, the law bars publicly traded companies from paying bribes to foreign officials.

Since 2009, the DOJ has initiated 104 enforcement actions under the FCPA, and the SEC has conducted 77 actions, raising more than US$2 billion for the federal government, according to Gibson, Dunn & Crutcher, a law firm that tracks enforcement actions.

FCPA enforcement has been increasing over the last 10 years, but that wasn't always the case, noted Andrew B. Spalding, assistant professor of law at the University of Richmond.

"For 25 years, it was enforced almost not at all," he explained to TechNewsWorld.

During that time, there were only a handful of enforcement actions, he said, and companies invested very few resources in complying with the law.

Accountability Spurs Enforcement

That changed in 2004. "Almost over night, the government started enforcing it very strongly," he said, "and in the last 10 years or so, there's been a steadily high rate of enforcement."

Several factors contributed to the change in enforcement of FCPA. The Sarbanes-Oxley Act, passed in 2002, paved the way for greater scrutiny of corporate fraud.

"It also held executives personally libel for their internal controls, so that made companies much more diligent in investigating their own lapses," Spalding noted.

Even before Sarbanes-Oxley, the international community began acting against corporate corruption. In 1997, a multilateral treaty was adopted along the lines of the FCPA.

Taken together, those developments spurred the new stance toward FCPA enforcement taken by the government, Spalding said.

Booming Industry for Lawyers

Companies are now investing heavily in FCPA compliance. "This is a booming industry in the legal profession," he added.

Companies will open their wallets even wider if there's an allegation against them. That's because federal regulators will allow a company to perform its own investigation of allegations and turn the results over to the regulators voluntarily, Spaulding explained.

"If a company conducts its own investigation, voluntary discloses its findings and otherwise cooperates with the enforcement agencies, the agencies will give the company cooperation credit," he said. That could impact the size of the penalty a company may have to pay.

"It's an enforcement procedure that sounds strange to people who are new to it," added Spalding, "but it's very common in securities law."


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